A resolution
was passed by Council in June 2002 stating “And that all further rate increases
by Region of York be automatically met by the Town of Markham with a percentage equal to that of
the Region”. Historically, the Town
receives projected water rate increases from the Region prior to the end of the
year and, at a minimum, matches the Region’s Water/Wastewater rate increases
following a public meeting and Council authorization towards the end of the
year.
The Municipal
Act (O.Reg. 244/02) requires a public meeting be held before passing a by-law
imposing a Water/Wastewater fee or charge.
As in previous years, following approval of this report, staff will
advertise notice of the public meeting via the “Town Page” in local newspaper
and the Town’s webpage.
As outlined in
the Water & Wastewater Reserve Study presentation made at the October 29,
2007 General Committee, a Water/Wastewater Infrastructure Surcharge in addition
to the matching of Region’s increase is required to sustain the expected
significant funding requirements for future capital replacement/rehabilitation
costs of the Waterworks infrastructure. 5
options in implementing the rate increase were presented at the General
Committee including:
Ø Option 1: full rate increase in 2008
Ø Option 2: phase-in evenly over 2 years
Ø Option 3: phase-in evenly over 4 years
Ø Option 4: phase-in evenly over 5 years
Ø Option 5: phase-in over 5 years with 40% of total increase in 2008
while the remaining increase be spread evenly over the following 4 years
It was
recommended at the General Committee that Staff provide other options including
phase-in over 6 to 10 years. These
additional options are outlined in the “Options/Discussions” section.
In Spring this
year, Waterworks staff held a Focus Group of Markham residents to gauge residents’ values
on Water related topics.
The
participants were confident that Waterworks was providing quality service which
is consistent with overall quality delivered by the Town of Markham.
Residents tended to be more interested in conservation and how much they
were using rather than the cost of water.
As discussed
previously at General Committee, Staff is looking at a revised water structure
that would support water conservation programs.
Staff will be reporting back to Committee in Spring 2008.
OPTIONS/DISCUSSIONS:
Region’s Increase
Based on
discussions with the Region, the Region’s proposed Water/Wastewater increase is
currently 6.35% effective April
1, 2008. The recommendation
is for the Town to match the Region’s 6.35% increase resulting in an increase
to the Town’s Water/Wastewater rate of $0.1006m3 to $1.6844m3
effective January 1, 2008.
Water/Wastewater Infrastructure Surcharge
There have been an increasing number of
burdens placed upon the Waterworks Department that supports a Water/Wastewater
Infrastructure surcharge, such as:
1. New Ministry Legislation and
Regulations
2. Aging Waterworks infrastructure and
rising replacement costs
3. Insufficient Waterworks Reserve
Hence, the Water & Wastewater Reserve
Study, similar to the Life Cycle and Capital Reserve Study, will establish a planned
program in addressing these burdens and in monitoring the adequacy of the
Waterworks Reserve.
1.
New Ministry Legislation and Regulations
As a result of the
Walkerton tragedy, new Ministry Legislation and Regulations, such as the Safe
Drinking Water Act, 2002 and The Sustainable Water & Sewage Systems Act,
2002, have been implemented that require additional spending on water and sewer
replacement, rehabilitation and maintenance.
The Ontario
government has passed the Safe Drinking Water Act, 2002 which expands on
existing policies and practices, and introduces new regulations to protect
water quality through the control and regulation of drinking-water systems and
drinking-water testing.
The Safe Drinking Water Act, Section
11, through the Drinking Water System regulation (O.Reg. 170/07),
and the Municipal Licensing Program (required under O.Reg.188/03) require
implementation of water system replacement, rehabilitation and maintenance
programs in order to ensure that the water system is well maintained. These
programs will be planned and monitored through the Quality Management System
being implemented for the operation of the water system.
Further, under the Safe Drinking Act
(O.Reg. 453/07), submission of a financial plan for the water distribution
system will be required as early as 2010.
The Sustainable Water & Sewage Systems
Act, 2002, addresses the requirements for future water rate increases,
including disclosure of the capital needs, and the plan to recover capital
costs through rates. Therefore, the Town
is pro-active in addressing the funding requirements at this time in advance of
pending legislation in relation to the financial plan.
2.
Aging Infrastructure and Rising Replacement Costs
The Waterworks
infrastructure is aging with a significant portion of the infrastructure installed
in the 1950’s. Given the life cycle on
this infrastructure ranges from 50 to 75 years, replacements/rehabilitation
requirements are expected within the next 20 years. Appendix B shows the types of Waterworks
infrastructure, the life cycle on each type of infrastructure and the
corresponding inventory as at December
31, 2006.
3.
Insufficient Waterworks Reserve
As of September 30, 2007, the
Waterworks Reserve balance is $8.76M.
Historically, the Waterworks capital
program has been limited/restricted to the available funding in the Waterworks
Reserve. This results in the deferral of
capital projects. The Water &
Wastewater Reserve Study will provide a planned capital program while ensuring
adequate funding in the Waterworks Reserve to sustain ongoing and future
capital requirements.
With no Water/Wastewater Infrastructure
Surcharge, according to the projected capital replacement/rehabilitation
program as identified in the Water & Wastewater Reserve Study, the
Waterworks Reserve will be fully depleted by the end of 2010.
Water
& Wastewater Reserve Study
The Water & Wastewater Reserve Study
addresses the ongoing replacement and rehabilitation requirements for
Waterworks infrastructure and other Waterworks related capital assets, such as
Fleet, Facilities and ITS infrastructure, over their useful lives. In addition, funding for capital induced
operating costs and non-replacement program costs are accounted for in the
Study.
Industry standards, the consultant study
from Delcan and other statistical construction data were used in determining
the life cycle and asset replacement values.
The Water & Wastewater Reserve Study incorporates Waterworks asset
inventory (as of December
31, 2006), life cycle assumptions and asset replacement values to
project the major replacement/rehabilitation costs for the Town’s Waterworks
infrastructure.
Future Waterworks capital budgets will be
based upon the Water & Wastewater Reserve Study, and condition assessments
will be performed to determine if the planned replacements are required.
Similar to the Life Cycle & Capital
Reserve Study, the Water & Wastewater Reserve Study is based on a 20 year
rolling period and it will be updated annually to account for new inventory. In addition, there should be a policy of maintaining
sufficient funds for the projected replacement/rehabilitation costs over the
next 20 years and sustainable funds for the following 5 years of Operations.
FINANCIAL
CONSIDERATIONS:
Infrastructure Surcharge
Options 1 to 5 were outlined in the Water
& Wastewater Reserve Study presentation.
Based on recommendation from General Committee, more options such as a longer
phase-in have been considered.
A phase-in evenly over a period longer
than 7 years, based on the model assumptions, will result in a negative reserve
balance in years with significantly high volume of
infrastructure/rehabilitation requirements.
Therefore, the following 3 options have
been added for consideration:
Ø
Option 6: Phase-in evenly over 6
years
Ø
Option 7: Phase-in evenly over
7 years
Ø
Option 8: Phase-in over 10
years with 20% of total increase in 2008, 15% of total increase in 2009 and the
remaining increase spread evenly over the following 8 years
Below is a summary of the options that
have been considered (Infrastructure Surcharge Only):
1.
Full rate increase of $0.3359/m3
starting in 2008
2.
Rate increase of $0.3451/m3 to
be phased-in evenly over 2 years
Ø
(increase of $0.1725/m3 per
year in 2008 & 2009)
3.
Rate increase of $0.3647/m3 to
be phased-in evenly over 4 years
Ø
(increase of $0.0912/m3 per
year from 2008 to 2011)
4.
Rate increase of $0.3752/m3 to
be phased-in evenly over 5 years
Ø
(increase of $0.0750/m3 per
year from 2008 to 2012)
5.
Rate increase of $0.3645/m3 to
be phased-in over 5 years with 40% of total increase in 2008 and remaining
increase spread evenly over the following 4 years
Ø
(increase of $0.1458/m3 in
2008 and $0.0546/m3 per year from 2009 to 2012)
6.
Rate increase of $0.3858/m3 to
be phased-in over 6 years
Ø
(increase of $0.0643/m3 per
year from 2008 to 2013)
7.
Rate increase of $0.3967/m3 to
be phased-in over 7 years
Ø
(increase of $0.0567/m3 per
year from 2008 to 2014)
8.
Rate increase of $0.4137/m3 to
be phased-in over 10 years with 20% of total increase in 2008, 15% of total
increase in 2009 and remaining increase spread evenly over the following 8
years
Ø
(increase of $0.0827/m3 in
2008, $0.0621/m3 in 2009 and $0.0336/m3 per year from 2010 to 2017)
Option 8 is recommended with a total
water/wastewater increase (in addition to Region’s increase) of $0.4137/m3 to
be phased-in over 10 years with 20% of the increase, or $0.0827/m3, implemented
in 2008. In 2009, there will be an
increase of $0.0621/m3 which is equivalent to 15% of total increase
and the remaining increase will be spread evenly over the following 8 years
($0.0336/yr from 2010 to 2017).
The rationale in recommending Option 8 is
due to this having the longest phase-in period of the options considered while
maintaining a positive reserve balance throughout the 25 year rolling period.
As outlined in the previous section, the
Water & Wastewater Reserve Study will be updated annually. Finance and Waterworks Staff will update the
Reserve Study to review and account for new inventory, new programs and related
capital induced operating costs, adjustments in replacement/rehabilitation
costs and growth in the operating budget.
Given the year-to-year adjustments in the
Reserve Study and to account for the items as discussed above, Staff will
monitor the reserve balance to ensure that the recommended Infrastructure
Surcharge and the rate increase in matching the Region’s increase can sustain
the overall operations (both operating and capital programs) of the Waterworks
department while maintaining a positive reserve balance during the 20 year
rolling period.
Staff will provide an update to Council
during the annual budget process.
Impact
on Reserves
With the recommended increase, the
Reserves will be at approximately $85M (Appendix C – Reserve Balance with
Phase-In of Recommended Rate Increase – Option 8) at the end of the 20th
year (year 2027). Based on this model,
sufficient funds should be available to sustain the following 5 years of
Operations.
Impact
to Residents & ICI Customers
An average household has water
consumption of 365m3
per year. With a total increase of $0.1833 increase/m3
(Region’s increase of $0.1006 and Town’s increase of $0.0827) in 2008, there will be an increase of $66.90 to an average household
bill. The impact on the top 10 ICI
customers, including a health care provider, manufacturers, and hospitality providers,
will range from $27K to $53K per year (Region’s increase $15K to $29K and the Town’s
increase $12K to $24K).
